This is a well-known red herring. Best bet is that the game designers were going to put in a side quest but didn't. The dialogue remains, but there's nothing to it.
If you're going to kill off svirfnebli (for shame!) just make sure you do their quests first, otherwise they won't talk to you.
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Where there is a great deal of free speech, there is always a certain amount of foolish speech. - Winston S. Churchill
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